Non-fungible Token (NFT): Is it still worth getting in?
In our Annual Outlook 2021, we had attributed a lot of “hype potential” to one topic in particular, the so-called non-fungible tokens (NFT). This now seems to be coming true. Those who recognised this hype in time could generate enormous profits with investments such as in the flow tokens from Dapper Labs. But how sustainable are these price increases? Is the NFT sector already in a bubble?
The term non-fungible token (NFT) still means something to only a few people. Our BTC-ECHO study with over 3,000 presumably crypto-savvy participants showed that around three quarters of all respondents had not yet had any contact with NFTs. More and more people interested in Crypto Wealth crypto should therefore be wondering about the many NFT news of the last few days. Above all, the sense or nonsense of these tokens might not always be obvious.
In very simplified terms, NFTs are “unique” tokens that cannot be exchanged homogeneously like a bitcoin or a security. The idea behind it: Every work of art exists only once, just as every internet domain exists only once, every piece of land in this world or seat 34 F in a particular cinema or plane. In the physical world, we are confronted with these “non-fungible”, i.e. unique objects or (usage) rights on a daily basis. Only with the help of blockchain technology is it now possible to map this scarcity and uniqueness in the digital space. Currently, it is mainly fan articles, collectibles and digital artworks that are driving the “NFT movement”.
30,000 percent price increase
One NFT project that is currently making headlines and further fuelling the NFT hype is the blockchain protocol from Dapper Labs and its underlying Flow Token. The Flow Blockchain provides the infrastructure for non-fungible tokens of all kinds. While you could buy a Flow Token for 0.10 US dollars in the pre-sale on coinlist.co in September last year, they are now trading at just under 30 US dollars. So anyone who invested 1,000 US dollars can now look forward to an “account balance” of 300,000 US dollars, i.e. 30,000 percent book profits.
Even if not to this extent, other NFT-related projects – such as The Sandbox, NFTX or LUKSO – have also risen sharply. But it is not only the tokens of NFT blockchain projects that are enjoying huge price increases, but also NFT itself. NFT artworks on SuperRare or OpenSea are reaching dizzying prices. Even the traditional auction house Christie’s cannot ignore the hype. For example, the NFT artwork Everydays: The first 5,000 Days by digital artist Beeple is being auctioned off on the auction site. Interested parties can bid until 11 March. The current bid is 3 million US dollars.
The difference with 2017
Non-fungible tokens have not just existed since this year. Already at the time of the ICO hype in 2017, the first NFT Collectibles existed with Cryptokitties and CryptoPunks. With the crypto hype at the time, a lot of money also flowed into these projects. At the peak, individual cat images were traded for five-figure sums. With the end of the ICO hype, however, the topic of NFT disappeared from the radar for the time being.
A lot has changed since then. Back then, there was no user-friendly infrastructure suitable for the masses, but projects like Top Shot by Dapper Labs speak a different language. They no longer address crypto-nerds who are at home in the world of wallets, tokens and decentralised exchanges. This can be seen in Dapper Labs’ most successful NFT project. A licensing agreement has been concluded with none other than the NBA, i.e. the National Basketball Association, which is very large, well-known and influential in the USA. Comparable to the Panini collector’s booklets, fans can get very close to their sports idols. These so-called Top Shots are videos or pictures of important basketball events. Deliberately scarce, horrendous prices are paid for the famous basketball moments on the connected NFT exchange.
Fortune seekers outside the crypto scene
More than any other phenomenon in the crypto economy, such as token sales, staking or DeFi, non-fungible tokens are targeted at people who may have no crypto affinity whatsoever. In a short time, so many millions of people come into contact with tokens who have never had anything to do with Bitcoin and Co. before. It is therefore entirely to be expected that the really big hype is still to come. Corresponding to the corona-induced speculative fever on the stock exchanges, a lot of money from small investors is still likely to flow into the NFT market through well-known tokens like the NBA and heat it up further.
The desire to get rich quick with NFT is also likely to attract more and more fortune seekers. The more “dumb money” that flows into the market and drives valuations to astronomical heights, the more you are also moving towards a dangerous bubble. Thus, at the end of an innovation cycle, it is often the dumb money that breaks the camel’s back and causes the bang.